Südzucker AG

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Südzucker AG

Maximilianstrasse 10
D-68165 Mannheim
Germany
(49) (621) 421-0
Fax: (49) (621) 421-393
Web site: http://www.suedzucker.de

Public Company
Incorporated: 1926 as Süddeutsche Zucker AG
Employees: 20,394
Sales: DM 8.18 billion (1998)
Stock Exchanges: Frankfurt Berlin Munich Stuttgart Hanover Hamburg Dusseldorf
Ticker Symbol: SZUG
SICs: 0133 Sugarcane & Sugar Beets; 2024 Ice Cream <! Frozen Desserts; 2037 Frozen Fruits, Fruit Juices & Vegetables; 2038 Frozen Specialties, Not Elsewhere Classified; 2048 Prepared Feeds & Feed Ingredients for Animals & Fowls, Except Dogs & Cats; 2051 Bread & Other Bakery Products, Except Cookies & Crackers; 2053 Frozen Bakery Products, Except Bread; 2063 Beet Sugar; 2064 Candy & Other Confectionery Products; 2066 Chocolate & Cocoa Products; 2869 Industrial Organic Chemicals, Not Elsewhere Classified; 5191 Farm Supplies

Südzucker AG is the largest sugar producer in the European Union (EU) with an annual production of three million metric tons and an EU market share of 16.4 percent in 1998. The German company is also one of the European leaders in other food markets including ice cream, frozen food, and industrial baked goods, which constitute about 40 percent of its business. Südzucker expanded its traditional sugar business—which was derived from 33 sugar production facilities and contributed about 60 percent of the company’s sales in 1998—into eastern Europe in the 1990s. In 1998, the company’s market share in sugar production reached 15 percent in the Czech Republic, 37 percent in Hungary, and 20 percent in Romania. Südzucker is also active in the areas of sugar substitute products, starch, and confectionery. The Süddeutsche Zuckerrüben-Verwertungs-genossenschaft (SVZG), the holding organization of southern German beet farmers, is the majority owner of Südzucker. The Deutsche Bank holds a ten percent share in the company’s capital. Südzucker’s major subsidiaries include the German Schóller group, the AGRANA group in Austria, and Raffinerie Tirlemontoise in Belgium.

A Sugar Giant Founded in 1926

… In 1747 Andreas Sigismund Markgraf, a German physicist, discovered that the “Runkelriibe,” a type of beet, contained sugar. After Markgraf’s student Franz Carl Archard displayed samples of the “Sweet Salt of Beets” to the Prussian King Friedrich Wilhelm III, the king provided a loan in 1802 to build the first German sugar factory. Between 1836 and 1856 about a dozen sugar production enterprises were founded in states in southwestern Germany, and by the end of the 19th century many more had been started.

On March 15, 1926, the member companies of the In-teressengemeinschaft Süddeutscher Zuckerfabriken, an organization that represented most sugar producers of southern Germany, merged to form Süddeutsche Zucker AG. The company had its headquarters in Mannheim and share capital of 30 million German Reichsmarks (RM). The member companies included the Badische Gesellschaft fur Zuckerfabrikation AG with factories in Wagháusel, Züttlingen, and Rheingau; the Zuckerfabrik Frankenthal AG with production facilities in Frankenthal, Regensburg, Friedensau, and Gernsheim; the Zuckerfabrik Heilbronn AG; the Zuckerfabrik Stuttgart AG with facilities in Stuttgart-Bad Cannstadt and Gross-Umstadt; and the Zuckerfabrik Offstein AG with factories in Offstein and Gross-Gerau. At the first meeting the new management team decided not to manage the factories as subsidiaries, but to divide them into two bigger firms, one in Frankenthal and one in Stuttgart, which would then manage all facilities in the surrounding areas.

In fiscal 1928-29, the new sugar giant employed 6,200 people, processed nine million metric tons of sugar beets and produced 1.3 million metric tons of sugar. After the merger, all facilities were modernized and equipped with state-of-the-art technology. At the beginning of the 1930s, Süddeutsche Zucker AG ran the most modern sugar production facilities in Germany. In 1929-30, production peaked at 2.25 million metric tons of raw sugar. To better utilize refinery capacity, Siidzucker bought additional amounts of raw sugar from northern German producers that year and afterwards.

However, the sugar industry at that time was confronted with difficult market conditions. German sugar producers were suffering in particular from competition by government-subsidized Polish and Czech sugar factories. As a result, in 1929 the German government raised import tariffs on sugar and established a maximum retail price to protect German customers. Sugar prices on the world market were low because of an oversupply from sugar-producing nations around the world such as Cuba, Java, England, Poland, Czechoslovakia, and Hungary. After those countries failed to reach a compromise at various conferences, and the export of sugar began to produce losses for German sugar producers who also refused to cut back production, the German government in 1931 began regulating German sugar production. The so-called “Zuckerwirtschafts-gesetz” (Sugar Industry Law) established fixed prices for sugar beets over a long period of time, enabling farmers to better plan crops. Delivery contracts with sugar factories also guaranteed that farmers would be able to sell their harvest and that they could expect a certain income at a certain time.

While shares were divided between many shareholders when the Süddeutsche Zucker-AG was founded, it was concentrated in the hands of only three corporate shareholders seven years later. In 1931, a group of upper managers examined the company’s financial situation, which at the time had RM 33 million in bank debts. Heavy investment in new technologies had pushed up capacity, while government restrictions limited output and prices. Consequently, production facilities were running at only 60 percent of capacity. The subsequent measures to improve this situation included closing down the facilities in Ziittlingen, Gernsheim, and Friedensau; centralization of the buying departments; reorganization of the factory in Frankenthal; and the acquisition of various shares in other companies. Siidzucker sales rose by about 20 percent from RM 150 million in 1929-30 to RM 177 in 1937-38. At the same time, the number of employees dropped by 15 percent to 5100 in 1936-37. In 1937, the company operated a variety of facilities: three factories for the production of white sugar; three factories which produced white as well as raw sugar; and one refinery. It also owned six sugar beet farms and operated some 50 others under a lease contract. Siidzucker also held between 61 and 100 percent of shares of various sugar producers mostly in southwestern and southeastern parts of Germany, as well as shares in various other companies such as mill operations, a maker of conserved food, a brewery, and a Swiss chocolate maker. During World War II, sugar production as well as the supply of raw materials and workers was administrated by the German government. In 1943 the sugar refinery Frankenthal was bombed heavily, and the central office building in Mannheim was completely destroyed.

New Beginnings After World War II

After World War II, the almost completely destroyed sugar factory in Frankenthal was closed down. In all, the German sugar industry lost 128 out of 201 sugar factories and six out of 13 sugar refineries which were located in the zone occupied by the Russian army. Only 29 percent of all land used for sugar beet farming before the war was located in the territory of what later became the Federal Republic of Germany (FRG). Accordingly, 62 percent of the sugar consumed in that area in 1946-47 had to be imported. Sugar supply became a crucial issue for the German food industry. Most of the imported sugar came from Cuba. In order to save coal, the military government required it to be distributed in its unrefined form as it was imported. However, in 1948 German sugar producers who wanted to utilize unused capacities convinced the military government to allow them to refine Cuban raw sugar into white sugar.

In 1949, the newly erected Siidzucker headquarters in Mannheim were reopened. Siidzucker undertook every effort to make the technology in its factories suitable for processing the Cuban raw sugar as quickly as possible. In the following years, more sugar producers competed to purchase the imported raw sugar. At the same time, domestic sugar beet production rose by 29 percent in 1950 alone, and Siidzucker was not able to process the entire amount of sugar beets harvested within its territory. With the foundation of the FRG, new regulations were worked out for the German economy, including the food sector, based on a more liberal model. In 1950, the “Gesetz iiber den Verkehr mit Zucker”—the so-called “sugar law”—was issued by the new West German government. It included guidelines on buying and processing sugar beets as well as on the production and storage of sugar, and allowed the parties involved to set their own prices. At the same time, holding organizations of the sugar farmers and manufacturers were reorganized.

Company Perspectives:

Nature is our partner. Siidzucker views itself as a dynamic corporation which understands its responsibility towards nature. In the agriculture and production divisions, solutions must be developed which are ecologically and economically sound. Siidzucker stands for competence and experience when it comes to secure the steady high quality standard of a natural food product. Flexibility in planning and innovation are the basis for our company’s future. As part of its growth strategy, Siidzucker is also involved in other areas of the food industry outside the traditional sugar business and it has developed into a food company.

Beet Farmers Become Shareholders in the 1950s

One of the most influential decisions for Siidzucker was made by farmers in September 1950. Under the leadership of Dr. Hans Hege, a plant cultivation specialist who at the time headed the holding organization of southern German beet farmers, they founded the Suddeutscher Zuckerriiben-Verwertungsgenossenschaft (SVZG). The main goal of the new organization was to raise funds to build new sugar factories. This was not the first attempt of sugar beet farmers to participate in the profits from further refining of their harvest. However, it was the first successful one. Shortly after the war, farmers again embraced a plan for building their own factory. Due to a short-age in production capacity in 1950, the Bavarian Ministry of Agriculture learned of the idea, and invited both parties to a meeting. Because the Ministry offered favorable grants and loans to farmers who participated in the project, Südzucker’s attitude was essentially positive. However, the farmers were only willing to cooperate if they could be majority holders of the new factory. In addition, if the new company were later merged with Südzucker, they wanted 26 percent of all Südzucker shares. Hege preferred a partnership between the fanners and the industry, but Südzucker felt their demands were unacceptable.

While the farmers started looking for other land—it was very unlikely that Südzucker would allow them to build their own factory on the company’s property—the Bavarian Ministry of Agriculture made it clear that the laws allowed them to forbid Südzucker to build a factory without the farmer’s participation. They also informed Südzucker that they would help the farmers raise finances to build a factory independently. Finally, after year-long negotiations and encouraged by additional funding from the American Marshall Fund which also wanted farmers to have 51 percent ownership of the new company, Südzucker signed the deal. In July 1951, the Zuckerfabrik Franken GmbH headquartered in Ochsenfurt was founded as a limited liability company with capital of DM 6 million. Dr. Hans Hege became the first chairman of the board. From 1951 until 1968, Südzucker’s board of directors was headed by Hermann J. Abs, a man who always tried to find compromises that matched the interests of Südzucker as well as the farmers. The Suddeutsche Zucker AG brought the new company the complete equipment of the desiccation plant Ochsenfurt, an asset worth DM 2.5 million. Due to enormously rising prices, it cost about DM 33.5 million, 40 percent more than originally planned, to build the new facility. Equipped with the latest machinery, it started production in November 1952. Only two years later, the factory was running at maximum capacity.

Expanding Capacities in Europe in the Next Three Decades

As a result of a new law, two representatives of Südzucker employees joined the company’s board of directors in fiscal 1953-54. The sugar yield in that year reached prewar levels for the first time. In 1956-57, Südzucker built a new factory in Rain am Lech, which was financed primarily by selling off shares of companies not involved in sugar production. It applied a new technological concept which included continuous extraction in an extraction tower and sugar storage in silos instead of sacks. Later, it became the only Südzucker facility to produce sugar cubes and sugar in fluid form. In 1957, 17 percent of the beet harvest in the Ochsenfurt area could not be processed in Südzucker’s facilities. Therefore, in the fall of 1958, the management committees of the Zuckerfabrik Franken GmbH decided to build a new factory in Zell am Main which was finished in 1960. Another new facility was built in Plattling in 1961-62. It was the only Südzucker facility able to produce a thick sugar concentrate which could be stored and further processed in the “slow time” between sugar “campaigns,” which began at the beet harvest in September and usually concluded by the end of a year when all the beets had been processed. Later it employed a new recycling technology which transformed the lime which was used to eliminate non-sugar elements out of the raw juice into fertilizer. In 1965, the Suddeutsche Zuckervertrieb GmbH, of which Südzucker held 52 percent of the capital, was founded in Frankfurt/Main by four southern German sugar manufacturers. From July 1968 on, this venture marketed a major part of the participating company’s products.

After the European Common Market was founded in 1957, German regulation of the sugar market was replaced by broader European laws. The new “EWG-Zuckermarktordnung” became effective in July 1968. Among other things, it determined production quotas for the Union’s sugar-producing countries and a minimum price to the farmers for quantities produced within the quotas. For all quantities over quotas which were exported by the producers, the European regulations subsidized price differences between the world and the domestic market. The subsidies were financed by a production fee paid by the beet farmers. In the new European market, cheaper products such as fondant, sweets, and sweet baked goods from other European countries competed with German sugar producers by lowering domestic demand from food companies. Since the EU regulations for the sugar market were introduced, production quotas and price regulations were updated regularly.

Restructuring and Diversification in the 1970s and 1980s

In the 1970s, the German economy was shaken by currency turbulence, the oil crisis in 1973, and the subsequent worldwide recession. Those circumstances, along with the rising influence of the new European regulations on the sugar market, led to an era of restructuring and diversification within the German sugar industry. As a result, 20 percent of the sugar factories still in existence in 1970 had disappeared by 1986. Südzucker reacted by making production more efficient and by diversifying into new markets.

First, production facilities were restructured around the three main areas of influence in Hessen-Pfalz, Baden-Würtemberg, and Bavaria. After old sites in Heilbronn, Stuttgart, and Züttlingen were closed down, a new production facility was built in Offenau in 1971, which processed sugar beets harvested from the Bodensee area up to the river Main. The remaining older Südzucker facilities in Gross-Gerau, Offstein/Pfalz, Wagháusel/Baden, Regensburg, and Worms were modernized and capacity optimized during the 1970s and 1980s. Südzucker’s central research and development department located in Off stein, “Palatinit,” developed a sugar substitute and introduced it to the German market. Another strategy Südzucker pursued was to optimize sugar beet quality. Studies in the 1960s showed that intensive fertilizing did not automatically yield better results. On the contrary, over-fertilized beets were of lower quality and caused processing problems. Therefore, Südzucker started a campaign to optimize nitrogen fertilization. Between 1979 and 1981, they tested the so-called “EUF-method” (Electro-Ultra-Filtration) and opened a laboratory that tested soil probes from beet farmers. Based on the results, farmers received fertilizing recommendations.

After an earlier attempt to diversify by purchasing a highquality food producer had failed in the 1970s, Südzucker adopted a new approach in the 1980s. In 1983, together with two major banks, Südzucker participated in a newly founded holding company, the Agrar-Industrie-Holding GmbH, which was set up in Mannheim with the goal of purchasing and administering shares in various companies involved in agriculture and the food industry. One of the most important acquisitions of that time was made in 1984-85 by acquiring a 15 percent share in Milchhof-Eiskrem GmbH & Co. KG (MEK) in Mettmann, a producer of milk and ice cream with above-average growth potential. In 1986, negotiations began regarding the possibility of a merger of Süddeutsche Zucker AG with Zuckerfabrik Franken GmbH. In 1988, Zuckerfabrik Franken GmbH and Süddeutsche Zucker-AG merged. The new corporation, headquartered in Mannheim, was named Südzucker AG Mannheim/Ochsenfurt. With 16 production facilities in Germany, the firm became the largest sugar manufacturer in the country. Zuckerfabrik Franken brought a 49 percent share in the German Schóller group—the second largest German ice cream maker at the time after Unilever’s Nestle group—into the marriage which later became one of the most important strategic growth markets for the new group.

Striving for Leadership in New Markets in the 1990s

After Germany was reunited in 1990, Südzucker began to do business in the new German Lander in former East Germany. Sugar sales grew in the two-digit range when the opening of the new east German market led to increased demand for sugar from producers—primarily West German—of beverages, baked goods, ice cream, candy, and milk products. In February 1991, Südzucker GmbH in Zeitz was officially registered as a fully-owned subsidiary responsible for all East German facilities. The 13 companies taken over by Südzucker were restructured between 1990 and 1994 with an investment of DM 800 million. Eight were closed as inefficient while the five remaining were equipped with state-of-the-art technology. In Zeitz, a new factory was built with a beet processing capacity of 10,000 metric tons a day which opened in 1993. After almost 20 years, Südzucker introduced a new package design for food retail sugar products in 1992.

With the acquisition of new shares in foreign sugar manufacturers, Südzucker became the largest sugar producer in the European Union, and extended its market borders further. In 1990, Südzucker took over the Belgian Raffinerie Tirlemontoise S.A. in Brussels. Through a participation in the DM 800 million Austrian AGRANA group, Südzucker not only gained control over the Austrian sugar market, but also a market share of over 30 percent in the Hungarian sugar market and an important share in the starch markets of those two countries. In return, the AGRANA group acquired a minority share in Südzucker which fluctuated between 1.4 and 6.4 percent in the following years.

Another growth market was Isomalt, Südzucker’s easy-to-process sugar substitute product first introduced to the German market in 1990. Isomalt, marketed by Südzucker’s subsidiary Palatinit SüBungsmittel GmbH, is made out of beet sugar, but contains only half the calories and is therefore suitable for diabetics. It is produced in a new facility in Off stein, Germany, and sold worldwide, primarily to the confectionery industry. In 1996, sales reached about DM 100 million, about 90 percent coming from exports.

Sales of the Schóller group grew by 28 percent in 1991 to DM 1.56 billion after two new ice cream factories were opened in East Germany and in Hungary. Beginning in 1994, Südzucker’s ice cream, frozen food, and baked goods sectors outgrew its traditional sugar division which at that time still generated about 80 percent of group sales. That same year, in order to centralize all subsidiaries and minority shares in those markets under the umbrella of the Schóller group, the Schóller Holding GmbH & Co. KG headquartered in Nürnberg was founded with 65 percent of the shares held by Südzucker. In 1995, Theo Spettmann became Südzucker’s new speaker of the executive board, after his predecessor Klaus Fleck suffered a fatal accident. Spettmann emphasized a strategic orientation as an international food company. In 1996, Südzucker purchased a majority in Freiberger, the leading European producer of frozen pizza, pasta, and baguettes which in 1998 was integrated as a 100 percent subsidiary. In 1997, the Schóller group acquired two companies, the Danish Hjem-Is-Group, the most important Scandinavian direct marketer of ice cream, and an ice cream producer in Turkey.

As a result of these activities, net profits grew by over 28 percent and reached DM 286 million in fiscal 1996-97. With over 20,000 employees in 1998, Südzucker headed towards DM 10 billion in sales, to be achieved mainly by cost reductions in its West German facilities; entering new sugar markets in Belarus, Lithuania and the Ukraine; and making the ice cream and frozen foods division as strong as the sugar business.

Principal Subsidiaries

Südzucker International GmbH; Südzucker GmbH; Raffinerie Tirlemontoise S.A. (Belgium; 74.7%); AGRANA Beteiligungs-AG (Austria; 42.6%); Palatinit Süssungsmittel GmbH; Schóller Holding GmbH & Co. KG (65%); Freiberger Lebensmittel GmbH & Co. Produktions-und Vertriebs KG.